U.S. stock markets fell sharply Friday morning following the release of two economic reports that indicate the U.S. economy is slowing.

The U.S. Commerce Department said U.S. construction activity plunged in October by the largest amount since the recession in 2001, while home building fell for a record seventh consecutive month.

And the respected Institute for Supply Management said its manufacturing index fell to 49.5 in November, below expectations of 52, and down from October's reading of 51.2.

"This manufacturing number indicates a definite slowdown," said Chyanne Fyckes, chief investment manager at Stone Asset Management. She told the Associated Press: "This is happening quickly, more quickly than I think people were expecting."

Unlike many economists, she does not believe the U.S. will come in for a soft landing.

"I'm still on the hard landing camp," she said.

The news helped send the Dow Jones industrial average down 27.80 points close at to 12,194.13, while the Nasdaq Composite Index fell 18.56 points to 2,413.21.

February gold held above $650 US an ounce, while Brent crude oil rose 36 cents to close at $64.62 US, while light crude rose 30 cents to $63.43 US on the Nymex exchange.

The reports added to worrisome evidence this week that the economy is softening.

On Thursday, the Chicago Purchasing Manager's index, a measure of manufacturing in the U.S. Midwest, was lower than expected.

Energy prices have moved up on lower-than-expected inventories, Wal-Mart has forecast a flat Christmas shopping season and U.S. inflation rose 0.2 per cent in October, slightly more than expected.

The news isn't good in Canada, either. Statistics Canada reported Friday that the November jobless rate rose one-tenth of a percentage point to 6.3 per cent, while the GDP has been declining steadily all year.

In its report, the U.S. Commerce Department said building activity dropped one percentage point to a seasonally adjusted annual rate of $1.18 trillion US in October following a 0.8 per cent fall in September.

It was the biggest decline since September 2001, when the United States was hit by a terrorist attack.

Residential construction fell for a seventh month in October, the longest stretch of weakness on record, while the drop in October was the biggest decline since July.

Only government construction strengthened in October, rising by 0.8 per cent to an all-time high of $273.1 billion annualized.